Photographer: Daniel Rodrigues/Bloomberg
politics

Protectionism and Debt Are Biggest Threats to World Economy, EU Says

  • ‘No trade war for time being, so that’s good,’ says Moscovici
  • EU economy commissioner speaks in interview in Washington

The biggest threats to global economic growth are government debt and protectionist leanings, European Union economy commissioner Pierre Moscovici said, underlining the challenges confronting finance chiefs at the International Monetary Fund meetings in Washington.

“The two main risks for growth, which is now very solid all over the world, are on the one hand protectionism and trade tensions, and on the other hand debt,” Moscovici said Friday in a Bloomberg Television interview in the U.S. capital. “There is no trade war for the time being, so that’s good.”

European Union Economic and Monetary Commissioner Pierre Moscovici discusses the possibility of a trade war

Source: Bloomberg

The IMF warned this week that the world’s debt load has ballooned to a record $164 trillion, a trend that could make it harder for countries to respond to the next recession. Global public and private debt increased to 225 percent of worldwide economic output in 2016, the fund said on Wednesday in its semi-annual Fiscal Monitor report.

The Washington-based fund also warned this month that the global commercial order risked being “torn apart” by trade wars. U.S. President Donald Trump is pushing for a crackdown on what he considers unfair trade practices by China and has announced tariffs on imports of steel and aluminum.

Global Debt Pile at a Record $164 Trillion

Sources: Global Debt Database; and IMF staff calculations

Data refer to the global gross debt (both public and nonfinancial private) for an unbalanced sample comprising 190 countries.

The EU is seeking a permanent exemption from the metals levies after Trump granted a waiver to the bloc until May 1 and left open the possibility of a longer exclusion. The European Commission, the EU’s executive branch in Brussels, has said that failure to gain a longer exemption from the U.S. metal-import duties would lead to a tit-for-tat response by the bloc.

The global debt burden clouded the IMF’s otherwise upbeat outlook of the world economy, which is in its strongest upswing since 2011. The fund forecasts expansion of 3.9 percent in 2018 and 2019.

“For the medium term, as always when you have a high debt and a high deficit, you need to watch that to avoid imbalances,” Moscovici, the EU’s economic and financial affairs commissioner, said in the interview with Tom Keene and Francine Lacqua. “And this is not only for Europe; this is worldwide.”

With the deficit in the U.S., the largest economy, “there are short-term effects macro-economically; long-term effects, that we cannot really foresee; and there are political effects,” Moscovici said. “For the short-term effects -- they are positive, since the American growth is picking up and with a booming American economy it’s good for the rest of the world.”

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